The new business owner’s guide to setting up a property tax system

Are you a new business owner or in a new role where you are setting up property tax compliance?

Maybe you’ve just been brought in to handle property tax for a brand-new organization and must prepare for your first filing. Or perhaps you’re part of an established company that is expanding into a new area you haven’t reported on before. You might even be dealing with the aftermath of an acquisition, where you now need to set up a new system and combine data and processes.

Whether there’s organizational history and you’re new to it or trying to learn from what has been done in the past, understanding how to set up a solid property tax system is crucial to filing accurately and staying compliant — both of which can save your company money.

This article will provide an overview of the setup process to reduce penalties and increase efficiency. 

While it might seem overwhelming, having the opportunity to start a property tax system anew is beneficial — you can do it the right way and make sure you’re collecting and organizing data in a way that supports compliance. The following are the steps to set up your new system properly.

Property tax is built on data. So, the first step to setting up your new property tax system is generating a set of data that is clean and accurate.   

In preparation for filing, you’ll need to gather various information about your organization’s fixed assets. (If you can acquire the information from your organization’s fixed asset team, that would be great, but in many cases, you may be the fixed asset team!) For each fixed asset, record the following: 

• The amount you paid for it
• The date you paid for it
• The asset or asset category (computer equipment, furniture, fixtures, buildings, etc.)
• The location of the asset

While the first three pieces of information are required for filing, the last one — location — is primarily important because it determines the jurisdiction in which you will report that information. For example, if you have multiple locations in Texas, you’ll need to report each location’s specific set of assets to different tax jurisdictions.

Having all the necessary data is key, but you need to organize it to support compliance with property tax filings. Having a long list of assets with just the information above won’t be sufficient come filing time. You need to think about your assets in a way an assessor would, which requires mapping your fixed asset data to two things: 

1. The assessor account number

Tax assessors assign an identification number to a piece or group of related assets. When you look at a particular account number, you want to see all the details related to that property. You also want to be prepared to manage that valuation as the assessor responds and says, “Here is your notice of value that relates to the return that you filed.”

In some cases, there may be more than one notice of value or more returns to one notice of value, so establishing that relationship between the return and the notice is essential in the setup phase.

2. The collector number

A collector is yet another entity involved in the property tax process; they are the ones who send out property tax bills.  

One assessment notice or account could receive multiple bills. It’s also essential to set up these relationships — between accounts and collectors — early on to immediately connect your assets with specific tax bill(s). 

The goal at this stage is to have your assets completely organized so that, for every single asset, you can see at a glance its location, the assessor you’ll report it to, and the collector who will collect tax on it. Not only is this crucial for property tax, but it also makes it easier to report internally on the data, providing all the detail anyone would need for the broader financial management of the business.

Next, consider the information you’ll need annually for reporting purposes. Now is the time to consider the variety of ways in which all this property data might be used in-house — and who might want to know what and for what purpose. For instance, your director of tax or the CEO might need information for strategic or budgetary purposes. Possible reporting angles could include:

• The status of all tax filings and payments
• A comparison of total tax amounts from year to year
• The cost centers related to each asset 

You can slice and dice property tax data in a variety of ways. As you set up your system, tag individual assets according to the information you’ll need — the more detailed you can get, the better.

Because this is an initial setup, the data you’re gathering is likely from various spreadsheets or other documents — in other words, it’s relatively unstructured. You need to bring it all together in a structured format so you can work with it. 

The best way to manage property tax data is to use software. (You can use spreadsheets, but this isn’t ideal, as you’ll learn below.) Depending on the software you choose, it likely has templates that require you to put the data into tables in preparation for loading it into the system. Transforming the data from unstructured to structured is an ETL process — where data is extracted from one or more sources, transformed according to specific business rules, and then loaded into the software system. 

Avalara Property Tax software makes it easy to upload your data and supports all the data relationships necessary for compliance.

Once your data is in the system in a structured way, you’re ready to prepare for personal property tax filings. Even at this point, there are still further things to think about that will help you stay in compliance and support your ability to think strategically about asset valuation:  

• Map assets to assessor categories. What you call a Lenovo laptop, the assessor might simply call “computer equipment.” Make sure your categories align.
• Note each item’s useful life. In addition to categories, assessors have often already defined the useful life of assets for depreciation purposes. Making that notation within the system ensures you apply the proper depreciation and correctly calculate value.
• Make notes regarding obsolescence. Economic or functional factors may impact an asset’s value; attempting to quantify these obsolescence factors could save your organization money. Add your own opinion of value regarding assets within the system. 

We also recommend loading information from the previous year into the system, whether from notices, returns, or tax bills. Then, when you add the new data, it’s all consistent with what it has been historically.

Setting up property tax the right way the first time will help you comply with the myriad of requirements tax jurisdictions demand — and follow through on your responsibility to pay property tax. 

One of the main issues organizations need help with concerning personal property tax compliance is simply meeting deadlines. This is especially true if you have multiple properties in multiple jurisdictions. Not only do you need to file on time, but you also need to pay bills in a timely manner. When dealing with several locations, accounts, collectors, and payment options, staying compliant can become difficult.   

However, it is crucial to be compliant. Failure to pay a property tax bill typically results in an interest charge and a monetary penalty above and beyond the amount of the bill itself. Essentially, if you don’t pay on time, you owe more. 

Failure to comply with jurisdictional filing rules has consequences, too. Again, you could incur a penalty on top of the amount you already owe for property tax. Not filing at all (but paying the bill) means there’s a chance you’ll end up paying more in taxes than what you should owe; you’re also likely to incur a penalty (usually about 10% of the tax bill amount). Filing a property tax return is your chance to provide specific valuation data that supports your fair market value, so skipping this step means you give up your right to appeal.

Following the steps above and being diligent about data collection will increase your chances of staying compliant. However, the best way to minimize your risk is to use software to help manage the data, deadlines, and payments.  

Some companies use programs like Excel or Google Sheets to track county information and due dates. While spreadsheets are great for organizing information, they require a lot of manual upkeep that carries the risk of human error. As returns, bills, and assessments roll in, dates may change, and you’ll need to update the spreadsheet continuously. 

Your process can get more complicated if you track installments or early payment discounts. You have to confirm deadlines remain accurate and update “best guess” information with actual due dates as you become aware of them. 

Software applications eliminate the manual work associated with compliance because they are designed to manage and track property tax. You’ll no longer have to look for deadlines and update them manually. Many software tools track deadlines and update them automatically; they also help you prioritize filings and payments so nothing falls through the cracks. You’ll always know precisely what needs paying when.

A software application can also help you prepare tax documentation. While it might take you and your team weeks to accurately prepare multiple filings, the right software can generate hundreds of filings in minutes — and help on the front end with things like asset categorization. 

Ultimately, an application increases the accuracy of your filings and ensures tax bills are paid accurately and on time every time.

Designed by property tax experts, Avalara Property Tax software supports greater accuracy and control of your compliance management. 

Whether you have one physical location and a small number of fixed assets or hundreds of thousands of each, our software has data import/export features to help streamline the management of your real and personal property. It can also help you categorize assets, allocate assets to various accounts, and automatically calculate the taxability and reportability of each asset based on jurisdiction rules. You’ll never have to worry about missing deadlines, notices, or bills again — and you can be confident your filings and payments are 100% accurate. 

Plus, we can help you implement your new system and import your data.  Contact  our property tax compliance specialists to learn how Avalara can help.